Insights

Financial Services Report

June 20, 2016

Looking Ahead

Near Term

  • The Senate is expected to take up a proposal on gun control in response to the the mass shooting in Orlando and after Sen. Chris Murphy (D-CT) held a 15-hour filibuster on the subject last week.   The vote will be part of four amendments to pending Commerce-Justice-Science spending legislation (H.R.2578).
  • The House is scheduled to debate the fiscal 2017 Financial Services spending bill (H.R. 5485), which includes decreases in funding for both the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC). The bill also would also block certain requirements set out by the 2010 Dodd-Frank financial reform law, notably including rebukes of the Consumer Financial Protection Bureau’s (CFPB) payday lending rule and adjustments to the Financial Stability Oversight Council’s (FSOC) systemically important financial institution designation process.
  • The House is also take up an override vote of President Barack Obama’s veto of a resolution (H.J. Res. 88) that would nullify the Department of Labor’s rule on the fiduciary duties of investment advisers, though they are unlikely to get the sufficient number of votes to sustain a veto.
  • Fed Chair Janet Yellen makes her semi-annual trek up the Hill to testify before the House and Senate Banking Committees this week.  The appearance comes after the Fed’s recent announcement to keep interest rates the same, as well as a recent NPRM on new regulations on insurance companies.  We also anticipate that questions about the impact of a potential “Brexit” on the global economy could be in the mix.
  • The Financial Stability Oversight Council (FSOC) will meet this week in a highly anticipated meeting on insurance rules and a review of the annual re-evaluation of the designations of nonbank financial companies. 

The Past Week

Legislative Branch
House
Ryan Releases Economy Piece of ‘Better Way’ Plan; Includes Financial Regulatory Relief
On Tuesday, House Speaker Paul Ryan (R-WI) unveiled the latest piece of his overarching policy initiative – dubbed “A Better Way” – setting out GOP policy priorities, with this release targeting financial reform and measures to stimulate the economy. The regulatory policy agenda includes detailed plans to roll back Dodd-Frank and largely mirrors House Financial Services Chairman Jeb Hensarling’s “Financial CHOICE” proposal. Among the major areas of agreement are a fundamental reform of the CFPB, a repeal of the Department of Labor’s rule on investment advice, and subjecting the Financial Stability Oversight Council (FSOC) to more stringent transparency rules.
 
Financial Services Committee Holds Mark-up
On Wednesday the Committee held a six-hour mark-up for a series of bills that were then voted on Thursday morning.   Among those considered were:

  • H.R. 4538, the “Senior$afe Act of 2016” was approved 59-0
  • H.R. 5424, the “Investment Advisers Modernization Act of 2016” was agreed to after being amended by a vote of 47 ayes and 12 nays (FC-109).
  • H.R. 4854, the “Supporting America’s Innovators Act of 2016” was approved 57-2.
  • H.R. 4855, the “Fix Crowdfunding Act” was also voted out on a 57 to 2 vote.
  • H.R. 5461, the “Iranian Leadership Transparency Act” was approved by a much narrower 39- 20 vote. (FC-112).
  • H.R. 5421, the “National Securities Exchange Regulatory Parity Act of 2016” was agreed to by a vote of 47-12 (FC-113).
  • H.R. 5311, the “Corporate Governance Reform and Transparency Act of 2016” was passed on by a vote of 41-18 (FC-114).
  • H.R. 5143, the “Transparent Insurance Standards Act of 2016” was passed, as amended, by a recorded vote of 34 ayes and 25 nays (FC-115).

  • H.R. 4850, the “Micro Offering Safe Harbor Act” passed by a vote of 34-25 (FC-117).
  • H.R. 5322, the “U.S. Territories Investor Protection Act of 2016” was unanimously approved. 
  • H.R. 4852, the “Private Placement Improvement Act of 2016” was voted out of committee on a 33-26 margin 33 ayes and 26 nays (FC-119).
  • H.R. 5429, the “SEC Regulatory Accountability Act” was agreed to by a 34-25 vote.   (FC-120).

 
Republican Lawmakers Press Boeing for Answers on Iran Sale
On Thursday, House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Peter Roskam (R-IL) sent a letter to Boeing CEO Dennis Muilenburg asking for information on the company’s recent sale of passenger jets to Iran. The lawmakers are asking the company to ensure that the planes and their parts cannot be transferred to sanctioned programs and whether the company would repossess the planes if they discovered any violations. Last year’s landmark nuclear deal lifted restrictions on selling commercial aircraft to Iran.
 
House Bill Would Alter CFPB’s Complaints Practices
On Thursday, Rep. Matt Salmon (R-AZ) introduced a bill (H.R. 5413) that would impose requirements on how the Consumer Financial Protection Bureau (CFPB) handles complaints submitted by consumers. Requirements proposed by the bill include only allowing complaint information to appear on the CFPB’s website in aggregated format and only allowing information on a complaint to be publicly available if it is accompanied by relevant statistics on how many complaints the Bureau receives with respect to a particular product or service.
 
Royce Urges Treasury to Maintain Iran’s ‘High Risk’ Designation
On Thursday, House Foreign Affairs Committee Chairman Ed Royce (R-CA) sent a letter to Treasury Secretary Jack Lew urging him to ensure Iran remains on a list of countries designated by the Financial Action Task Force as “high-risk and non-cooperative jurisdictions” for money laundering and terrorist financing. The designation prevents the Middle Eastern nation from accessing parts of the U.S. financial system.
 
Hensarling Releases Details on Dodd-Frank Replacement
On Wednesday, House Financial Services Committee Chairman Jeb Hensarling (R-TX) released an 18-page summary plan that provides fresh details of his plan to replace the Dodd-Frank financial reform law. The summary adds to the resources Hensarling has rolled out in support of the reform effort, and may serve as the basis for any upcoming legislation. Specifically, the new release details how banks can opt-in to an alternative regulatory regime instead of being subject to Dodd-Frank’s Volcker rule, and proposes changes to banks’ yearly stress-test exercises. The proposal would also allow institutions to submit a living will every two years as opposed to the annual wills currently required.
 
Senate
Senate Appropriators Advance Financial Services Spending Bill
On Thursday, the Senate Appropriations Committee approved the Financial Services spending bill on a unanimous 30-0 vote. The bill would provide $22.4 billion in funding, including $11.2 billion to the Internal Revenue Service and $1.6 billion to the Securities and Exchange Commission (SEC). The Senate version excludes the cuts to the IRS and SEC budgets and the policy riders that are in the version set to be considered on the House floor this week. However, the bill’s prospects are slim as the Financial Services measure has never been considered on the Senate floor as a stand-alone bill since the subcommittee was created in its current form in 2007.
 
McConnell Commits to House Puerto Rico Bill Consideration Before July 1
On Tuesday, Senate Majority Leader Mitch McConnell (R-KY) announced that he plans to bring a House-passed bill (H.R. 5278) addressing Puerto Rico’s debt crisis to the Senate floor prior to the island territory’s next debt payment on July 1. McConnell did not commit to a date, only saying that the chamber will “be taking up the House bill sometime before the end of the month.”
 
Senate Banking Committee Questions White on Political Disclosure, Fiduciary Rule
On Tuesday, the Senate Banking Committee heard the testimony of Securities and Exchange Commission (SEC) Chair Mary Jo White as she outlined the actions of the agency and its priorities going forward. Chair White noted her work on completing mandatory rulemakings, preemptively explaining inaction on non-mandatory rules in the Dodd-Frank reform law. Democrats charged Chair White for failing to make progress on a rule for disclosures of political contributions made by corporations, while Republicans focused on the SEC’s possible work on a uniform fiduciary standard and the systemically important designation process completed by the Financial Stability Oversight Council.
 
Senate Dems Ask SEC for Investigation of Puerto Rico Debt Crisis
On Tuesday, Senate Democrats, led by Sen. Bob Menendez (D-NJ), wrote a letter to Securities and Exchange Commission (SEC) Chair Mary Jo White asking for an investigation into the circumstances surrounding the Puerto Rico’s ongoing debt crisis. Specifically, the lawmakers want the SEC to look for “possible municipal bond market manipulation, conflicts of interest, trading practices . . . as well as any other fraudulent, illegal or wrongful conduct.”
 
Select Highlights from the Administration

Securities and Exchange Commission (SEC)
IEX Exchange Approved
Late on Friday, the SEC approved the application of the IEX Group to become the nation’s 13th national stock exchange.   IEX will be unique in that it slows the speed of trading, which was a major point of contention during its application process, as its over competitors that said its model threatens investor benefits flowing from ever-faster markets.  The IEX speed bump will slow orders by 350 millionths of a second, but that delay could limit the arbitrage opportunities that high frequency traders seek to take advantage of.  The SEC could face legal challenges for its decision, since last month, Nasdaq said they might sue if the SEC approved IEX’s application. 
 
Education Department
Education Department Releases Rules to Ban Arbitration Clauses in Fraud Cases
On Monday, the Department of Education proposed new rules intended to strengthen protections for student borrowers by prohibiting mandatory arbitration clauses in student enrollment contracts. The rules would also streamline relief for student borrowers who are deemed to have been defrauded by a school and create a process for group-wide loan discharges when large numbers of students have been victims of misconduct. Public comments on the rule are due by Aug. 1 and the department said it expects to have a final rule by Nov. 1.
 
Next Week’s Schedule

Tues. (6/21)

  • Hearing: Senate Banking Hears Fed Chair Semiannual Report to Congress – 10:00 AM – The Senate Banking Committee will hold a hearing entitled, “The Semiannual Monetary Policy Report to the Congress,” featuring Fed Chair Janet Yellen. Details here.
  • Meeting: FSOC Meeting on Fed Insurance Rules – The Financial Stability Oversight Council (FSOC) will hold an open meeting and an executive session with an update on market developments, a discussion of the Board of Governors of the Federal Reserve System’s proposed rulemakings that would apply to certain insurance companies, and a discussion of the annual re-evaluation of the designation of a nonbank financial company all on the agenda. Details here.
  • Meeting: FDIC Board of Directors Open Meeting – 10:00 AM – The Federal Deposit Insurance Corporation (FDIC) will hold an open meeting to discuss interim and final rulemakings. Details here.
  • Hearing: House Rules Committee on Financial Services Approps – 5:00 PM – The House Rules Committee will hold a hearing on H.R. 5485, the Financial Services and General Government Appropriations Act ahead of its likely floor consideration later in the week. Details here.
  • Hearing: Senate HELP Committee on Open Multiple Employer Plans – 2:30 PM – The Senate Health, Labor, Education, and Pensions (HELP) Subcommittee on Primary Health and Retirement Security will hold a hearing entitled, “Small Business Retirement Pooling: Examining Open Multiple Employer Plans.” Details here.

Wed. (6/22)

  • Hearing: House Financial Services Hears Fed Chair Semiannual Report to Congress – 10:00 AM – The House Financial Services Committee will hold a hearing entitled “Monetary Policy and the State of the Economy,” featuring Federal Reserve Chair Janet Yellen. Details here.

Thurs. (6/23)

  • Hearing: Senate Banking on Bank Capital and Liquidity Regulation – 10:00 AM – The Senate Banking Committee will hold a hearing entitled, “Bank Capital and Liquidity Regulation Part II: Industry Perspectives.” Details here.
  • Hearing: House Financial Services Task Force on Terrorist Financiers – 10:00 AM – The House Financial Services Task Force to Investigate Terrorism Financing will hold a hearing entitled, “The Next Terrorist Financiers: Stopping Them Before They Start.” Details here.
  • Hearing: House Small Business on DOL Overtime Rule – 10:00 AM – The House Small Business Committee will hold a hearing entitled, “Damaging Repercussions: DOL’s Overtime Rule, Small Employers, and their Employees.” Details here.
  • Heritage Foundation Event on Dodd-Frank – 9:00 AM – The Heritage Foundation will hold an event entitled, “The Case Against Dodd-Frank: How the ''Consumer Protection'' Law Endangers Americans,” featuring House Financial Services Committee Chairman Jeb Hensarling. Details here.
  • NPC Lunch with Labor Secretary Tom Perez – 12:30 PM – The National Press Club will host a luncheon featuring remarks from Labor Secretary Tom Perez. Details here.

Fri. (6/24)

  • Aspen Institute Event on Retirement Savings – 9:30 AM – The Aspen Institute Financial Security Program will host an event entitled, “Retirement Savings Goes Automatic.” Details here.